The supply curve shares the same labels on the axis as the demand curve. As mentioned this therefore allows the two to be displayed on a single graph. But more on that later...
Generally supply measures the amount of a product that is in its respective market. Or more specifically the relationship between price and quantity supplied by suppliers. For example we measure the supply of oil in the oil market all of the time to see if there is enough of this scarce resource to meet the needs of all the consumers at any given time.
Also we can measure supply at any given price or over a period of time. This is where theory comes into play. We assume that if prices of a given good go up then providing that costs of production haven't also increased then profit margin per unit sold increases. Therefore as it becomes more profitable to manufacture and sell this particular product in question, more suppliers come to the market in order to supply to that market and hopefully take a slice of market share and the associated profits. Hence the number of units in the market increase.
However this is theoretical and obviously we know that when prices increase, less consumers are willing to part with their cash assuming that it is a price elastic product. Hence despite the increased supply some will go unsold and so not all of these suppliers will achieve the higher profits that they initially desired.
Take this Supply curve for instance:
We can see the effect of increasing price on the supply to a given market. As price increases from P1 to P2 the quantity supplied moves from Q1 to Q2. Therefore this shows that supply increases along with price (Hence the positive gradient of the line) as more suppliers become willing to supply to the market at a higher price. We could also say that this is an expansion of supply. A contraction of supply (or demand for that matter) would be the case when quantity supplied or quantity demanded decreases.
What determines the supply to a given market?
As mentioned earlier profitability affects the number of suppliers willing to supply to the market. Therefore if wages increase then profit margin may well be cut and so suppliers switch to a more profitable product to supply. This forms the Labour part of the Factors of Production which are all influential in determining supply. (They can work to increase or lower supply.)
Whereas rent and wages increase which causes upward pressure on prices, investment in capital goods - Capital Investment - improves the state of technology, efficiency and productivity amongst others.
Of course prices of other goods alter the supply too. For example a firm produces computers and televisions. If the price of televisions increases, then the firm may switch to producing more TVs as they are more profitable. However resources are scarce and as the Production Possibility Curve shows, there will be an opportunity cost of this as it will likely mean that in order to increase the supply of TVs we must forgo some Computers. This is logical when we look at raw materials. Say for example the firms budget allows them to buy 1,000,000 LEDs per year. Therefore if more TVs are required there will be less available to use in the production of Computers and so supply of Computers cannot be increased also.
Weather and climate is also an obvious determinant. If a farmer grows wheat and then there's a drought it will mean that unfortunately most of the crop is wasted and cannot be eaten. Therefore supply to the wheat market falls which is likely to increase price too. Adverse weather conditions is by far the easiest factor to remember and include in your exam if asked to name some causes of a change on supply.
Finally Subsidies, which often form part of the government's Supply Side Policy, are direct payments to producers and manufacturers to act as an incentive to increase their output. Therefore they become more competitive an increased supply causes downward pressure on price ceteris paribus.
What causes a shift in the supply curve?
Any of the factors from the above paragraph will cause not an expansion or contraction along the supply curve but an inward or outward shift in the supply curve. Like with demand, it is the non-price determinants that result in this shift and remembering this is fundamental to success when drawing these curves. So here is a visual representation of such a graph. I have used the example of improvements in technology which causes a shift to the right or an outward shift in supply at any given price.
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